A owns a restaurant, which he had bought three years ago for ₹ 20 lakh. He had bought fire insurance worth ₹ 16 lakh (which is the written down value of his insured property). His restaurant caught fire and the amount of

Fire Insurance Contracts are contracts of indemnity. Indemnity means making good of the loss by reimbursing the exact monetary loss. It aims at keeping the insured in the same position he was before the loss occurred and thus prevent him from making profit from the insurance policy. A has taken insurance worth ₹ 16 lakh for the property valued at ₹ 20 lakh. Average clause will apply so claim would be: Sum insured/value of insured asset x Actual loss = (16,00,000/20,00,000) x 5,00,000 = ₹ 4,00,000 Thus the claim payable is ₹ 4,00,000. Principles of Insurance Contract, the settlement of contract take place: (i) Offer and Acceptance: It is a prerequisite to any contract. The property under fire insurance will be insured after the offer is accepted by the insurance company. (ii) Payment of Premium: An owner must ensure that the premium is paid well in advance so that the risk can be covered. If the payment is made through cheque and it is dishonoured then the coverage of the risk will not exist as per section 64VB of Insurance Act, 1938. (iii) Utmost good faith: The property owner must disclose all the relevant information to the insurance company while insuring their property. Features of Fire Insurance Policies Written Agreement: Fire insurance is a written agreement that take place between insurance company and insured. There is an offer and acceptance of insurance agreement between both the parties. Such agreement is bounded by certain obligations and both parties are required to fulfil these obligation. Insurer agrees to provide guarantee for compensation against fire losses. Insured pays premium to insurer regularly for taking such guarantee for compensation. Payment of Premium: Fire insurance requires payment of premium by insured to insurance companies. Premium is considered as lawful consideration in insurance contract like in any other lawful contract. This premium is paid by insured to insurer for protecting itself and getting compensation against fire losses. Insurance premium is termed as contribution on the part of insured in fire insurance contract. Contract of Indemnity: Fire insurance indemnifies for losses on occurrence of contingency. Insurer under fire insurance contract compensates when some contingency occurs resulting in losses and damages. Insured cannot make profit from insurance policy but can only claim compensation from insurer in case of contingency. If no contingency occurs, insurer is not required to pay any compensation to insured. Compensation for Fire Losses: Under fire insurance contract, insurer compensates insured for fire losses. Fire is the only reason which is taken into account for various losses and damages done. The fire according to this contract must be real and accidental. Any loss or damages to property arising out of reasons other than fire is not considered under this contract. Insurance companies are not liable to pay for such amount of losses. Covers Insured Amount: Insurer under fire insurance contract are liable to compensate up to insured amount of property. The insured amount is the extent of loss to property which insurer agrees to undertake and compensate at time of entering the insurance contract. Insurer is not liable to pay any amount for amount of losses which exceeds the insured amount. No Mis-Representation or Concealment: There is no misrepresentation or concealment of facts by both insurer and insured. Misrepresentation of facts from both insurer and insured side will make the insurance contract void. Insured is required to disclose full information regarding property to be insured fairly to insurer. This will helps the insurer in calculating the right amount of premium to be charged. Insurer is also required to explain clearly the terms and conditions of insurance contract to insured to avoid any confusion. Period of Insurance: The period of fire insurance policy is equal to or less than one year. Fire insurance cannot exceed one year except if this insurance is issued for residential houses where it can exceed one year. These insurance policies need to be renewed from time to time for carrying it for longer term. Claims: Insured is required to inform the insurer immediately in case of fire accidents for getting their assured compensation. Timely informing about contingencies to insurers will help them in determining the actual amount of losses which take place due to fire accidents.